COUNTY OF EL PASO, TEXAS Notes to the Financial Statements September 30, 2014

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2 COUNTY OF EL PASO, TEXAS Notes to the Financial Statements September 30, 2014 Note 1. Summary of Significant Accounting Policies The financial statements of the County have been prepared in conformity with generally accepted accounting principles (GAAP) as applied to governmental units. The Governmental Accounting Standards Board (GASB) is the accepted standard-setting body for establishing governmental accounting and financial reporting principles. The County's most significant accounting policies are described below. A. Reporting Entity The County of El Paso is a public corporation and a political subdivision of the State of Texas. The governing body of the County is the Commissioners Court. The Commissioners Court is composed of five elected officials, the County Judge and four County Commissioners. The financial statements of the County, the reporting entity, include all governmental activities, departments, agencies, organizations and functions of the County for which the governing body is financially accountable. In evaluating and determining how to define the financial reporting entity, all likely units have been considered. As such the County is not included in any other governmental entity as defined by GASB Statement 61, The Financial reporting Entity: Omnibus an amendment of GASB Nos. 14 and 34. The decisions to include or exclude a potential component unit in the reporting entity were made by applying standards contained in GAAP. The key consideration for including or excluding a potential component unit is the primary governing body's financial accountability. A primary government is financially accountable for legally separate organizations if its officials appoint a voting majority of an organization's governing board and if it is able to impose its will or there is a potential for the organization to provide specific financial benefits to, or impose specific financial burdens on the primary government. In conformity with the criteria discussed above, the financial statements of the El Paso County Hospital District (Hospital District), Emergency Services District #1 (ESD1), and Emergency Services District #2 (ESD2), have been included in the financial reporting entity as discretely presented component units. The El Paso County Commissioners Court appoints their governing bodies, approves their budgets, sets their tax rates and approves their issuance of bonded debt. These units are reported on a separate statement and summarized in a separate column in the government-wide financial statements to emphasize that they are legally separate from the County. The Hospital District operates University Medical Center, a non-profit organization, formally known as R. E. Thomason General Hospital. Complete financial statements for the Hospital District can be obtained from its administrative office at: University Medical Center, 4815 Alameda Avenue, El Paso, Texas 79905, (915) Emergency Services District 1 (ESD1) provides emergency services for the town of Horizon City and other communities within a 10-mile radius of the town. ESD1 provides services 49

3 through the Horizon Fire Department, including training for the 47 active members, of which 17 are emergency Medical Technicians certified at the basic level and six are certified at the paramedic level. The department has 11 certified firefighters. ESD1 utilizes dispatching services in conjunction with Horizon City Police Department. Complete financial statements can be obtained from the Office of the Board of Commissioners, President, Nunda, Horizon City, Texas and can be found on their website at El Paso County Emergency Services District 2 (ESD2) contracts with six volunteer fire departments to provide emergency services for the areas of Clint, Fabens, Montana Vista, San Elizario, Socorro and Upper Valley. Currently ESD2 covers approximately 419 square miles and serves a population of approximately 107,000 citizens. ESD2 volunteers are trained as both certified Firefighters and EMTs providing both basic and advanced life support. ESD2 has a paid Fire Marshal s Division with four (4) Fire Marshals certified by the Texas Commission on Fire Protection (TCFP) and by the Texas Commission on Law Enforcement (TCOLE) who enforce the fire code, educate the citizens on fire protection and conduct fire investigations. Complete financial statements can be obtained from the El Paso County Emergency Services District #2 District Office at 100 S. San Elizario Rd., Suite N, Clint, Texas and can be found on their website at B. Government-wide and fund financial statements The government-wide financial statements report financial information of the primary government and its component units for all non-fiduciary activities. The effects of inter-fund activities have been removed from the government-wide financial statements, except where the elimination would distort the financial statements. Governmental activities, which normally are supported by taxes and intergovernmental revenues, are reported separate from business-type activities, which rely on fees and charges for a significant portion of their revenues. The statement of net position focuses on the net position of the governmental and business type activities of the primary government and its component unit, where the net position equals the assets and deferred outflows of resources less liabilities and deferred inflows of resources. The statement of activities focuses on the direct expenses of a given function that are offset by program revenues. Direct expenses are those expenses that are clearly identifiable with a specific function. Program revenues include 1) charges for services and 2) operating and capital grants and contributions. Taxes and other revenue items not included in program revenues are reported as general revenues. Separate financial statements are provided for the Governmental, Proprietary and Fiduciary funds, even though the latter are excluded from the government-wide financial statements. C. Measurement focus, basis of accounting, and financial statement presentation The government-wide financial statements are reported using the economic resources measurement focus and the accrual basis of accounting, as are the proprietary and fiduciary fund financial statements. Under the accrual basis of accounting, revenues are recorded when earned and expenses are recorded when a liability is incurred, regardless of when the related cash flows occur. Property taxes are recognized as revenue in the year for which they are levied. Grants and similar items are recognized as revenue as soon as all eligibility requirements have been met. 50

4 Note 1. Summary of Significant Accounting Policies (Continued) C. Measurement focus, basis of accounting, and financial statement presentation (continued) All governmental funds are reported using a current financial resources measurement focus. Ordinarily, only current assets, deferred outflows of resources, current liabilities, and deferred inflows of resources are included on the balance sheet with this measurement focus. The operating statements of the funds present increases (i.e., revenues and other financing sources) and decreases (i.e., expenditures and other financing uses) in net current assets. The modified accrual basis of accounting is used by all governmental funds. Under the modified accrual basis of accounting, revenues are recognized when susceptible to accrual (i.e., when they become measurable and available). In the case of the County, "measurable" means the amount of the transaction can be determined and "available" means collectible within the current period or within 60 days thereafter, to pay liabilities of the current period. Expenditures are generally recognized under the accrual basis of accounting when the related fund liability is incurred. Revenues susceptible to accrual include property taxes, fines, forfeitures, special assessments, licenses, interest income and charges for services. Sales and use taxes collected and held by the State at fiscal year-end on behalf of the County are also recognized as revenue. Permits are not susceptible to accrual because generally they are not measurable. Unavailable and unearned revenues arise when potential revenues do not meet both the measurable and available tests for recognition in the current period. Unavailable and unearned revenues also come about when resources are received by the County before the County is legally entitled to them. In succeeding periods, when both revenue recognition criteria are met, or when the County has a legal claim to the resources, the deferred inflows for unavailable revenue or the liability for unearned revenue is removed from the statements and revenue is recognized. The County reports the following major governmental funds: The General Fund is the primary operating fund of the County. It accounts for all financial resources of the general government, except those required to be accounted for in another fund. Special Revenue-Grants Funds are used to account for funds received from federal, state and local agencies for specific programs and services for the community. Federal funds include those received from the U. S. Department of Health and Human Services, U. S. Department of Justice, U. S. Department of Homeland Security, Office of National Drug Control Policy, U. S. Department of Agriculture, among others. State funds include those received from the Office of the Governor, Texas Department of Transportation, Texas Department of Public Safety, Texas Attorney General, Texas Department of Housing and Community Affairs, and others. Local funds are from the City and other local agencies. 51

5 Note 1. Summary of Significant Accounting Policies (Continued) C. Measurement focus, basis of accounting, and financial statement presentation (continued) The County Capital Projects 2007 is used to account for the financial resources secured through the sale of certificates of obligation to fund a multitude of county projects, to include flood control, water and sewer improvements; constructing and improving recreational facilities; improvements to the Justice Information Software, County Rural Parks, County Courthouse, Archive Building, Juvenile Justice Center, Downtown Jail, and Jail Annex; and other County capital needs. The County Capital Projects 2012 is used to account for the financial resources secured through the sale of certificates of obligation to fund a multitude of county projects, to include the Tornillo-Guadalupe Land Port of Entry bridge, renovations to existing and construction of new County facilities, improvements to the County s Information Technology Systems, enhancements to the Sheriff s Department radio and emergency communication systems, and the replacement of vehicles for the Sheriff s Department and other County departments. The County reports enterprise funds as major proprietary funds. The enterprise funds account for the activities of the East Montana Water Project, the Mayfair/Nuway Water Project and County Solid Waste. User charges are used to pay off the debt on the revenue bonds for the East Montana Water Project, plus the operating expenses for both enterprise funds. Individual fund data for each of the non-major governmental funds is provided in the form of combining statements elsewhere in this report. The County reports the following non-major governmental funds: Special Revenue Funds account for specific revenue sources that are restricted or committed for specified purposes other than debt service or capital projects. Debt Service Funds account for financial resources that are restricted, committed, or assigned to expenditure for principal and interest on long-term obligation debt of the County. Capital Projects Funds account for financial resources that are restricted, committed, or assigned to expenditure for major capital outlays. The County additionally reports the following fund types: Internal Service Funds account for the health benefits provided to County employees, retirees and dependents. The workers compensation benefits fund is also accounted for in the Internal Service Funds. Contributions to the funds are made as charges to the departments for covered employees along with contributions from employees and retirees to the Health Fund. Agency Funds are used to account for the assets that are held in a trustee capacity or as an agent for individuals, private organizations, other governmental units, and/or other funds. These include the following: 52

6 Note 1. Summary of Significant Accounting Policies (Continued) C. Measurement focus, basis of accounting, and financial statement presentation (continued) County Payroll Fund is used as a clearing account for the bi-weekly employee payroll. IRS Section 125 Fund is used to account for the employees contributions to a cafeteria plan under the provisions of the Internal Revenue Code Section 125. County Employees Retirement Fund is used as a clearing account for the County and employees contributions to the Texas County and District Retirement System. Social Security Fund is used as a clearing account for the F.I.T. and F.I.C.A. employee withholdings and employer contributions. Child Support Fund is used as a clearing account for County employees deductions for court ordered child support payments. West Texas Community Supervision and Corrections Fund is used to account for the activities of the State Adult Probation Department. County Attorney Bad Check Trust Fund is used to account for the collections and disbursement of insufficient fund checks filed with the County Attorney by area merchants. Sheriff s Task Force Seizures Fund is used to account for funds seized by various initiatives of the Sheriff s Department and held pending disposition by the Courts. District Attorney Seizures Fund is used to account for multi-agency seizures held pending disposition by the Courts. Other Elected Officials Fund is used to account for the collections of various county officials pending the allocation to the County, other governmental entities or individuals. Interfund activities have been eliminated from the government-wide financial statements. Amounts reported as program revenues include 1) charges for services (i.e., application fees, fines, court fees, processing fees, etc.), 2) operating grants and contributions, 3) capital grants and contributions. Other revenues that are not related to a specific activity or function are reported as general revenues. General revenues include all taxes, grants and contributions not restricted to a specific program or function, and any unrestricted investment earnings. 53

7 Note 1. Summary of Significant Accounting Policies (Continued) C. Measurement focus, basis of accounting, and financial statement presentation (continued) The proprietary fund distinguishes between operating and non-operating revenues and expenses. Operating revenues and expenses result from providing services in connection with the proprietary fund s principal operations. The East Montana Water Project recognizes tap and water service fees as operating revenues. The County Solid Waste Project recognizes waste collection fees as operating revenues. Revenues and expenses not considered as operating are classified as non-operating. When both restricted and unrestricted resources are available for use, it is the County s policy to use restricted resources first, then unrestricted resources as they are needed. D. Budgets Annual budgets are approved and utilized for the general fund, special revenue and grant funds, and debt service funds. Annual budgets for the debt service funds are adopted by fund type in the aggregate. Annual budgets are adopted for the special revenue grant funds at the aggregate level by function. Budgets for grants are employed as a management control device in order to comply with granting agencies' provisions. Appropriations expire at fiscal year-end with the exception of grant funds and capital projects. Formal budgetary integration is employed for the general fund, special revenue and grant funds and debt service funds. Capital projects funds are ordinarily more project oriented than period oriented, thus, project-length budgets for all capital projects funds are utilized and appropriations at year-end carry forward to subsequent years until the project completion. Budgets for all funds are prepared on the modified accrual basis. Formal budgetary integration is not employed in the Internal Service Fund. The County has one special revenue fund that was not included in the adopted budget. This fund is the County Attorney Bad Check Operating Account, which is legally controlled at the discretion of the County Attorney. The annual adopted budget for fiscal year 2014 totaled $301,815,403. Throughout the year, the Commissioners Court amended the budget for an aggregate increase total of $28,056,487. These increases represented statutorily provided increases for additional funding by granting agencies and intergovernmental agreements bringing the overall budget total to $531,350,064, including re-appropriations. The appropriation changes included revisions as follows: 54

8 Note 1. Summary of Significant Accounting Policies (Continued) D. Budgets (Continued) County of El Paso, Texas Schedule of Amended Funding Amounts For the period ending September 30, 2014 Special Debt Capital Total Date of General Revenue Enterprise Service Projects Funding Amendment Fund Fund Fund Fund Fund Grants Amounts October 7, 2013 $244,249,556 $30,967,102 $2,410,413 $20,342,693 $3,845,639 $0 $301,815,403 Total amendments (1,935) 606,900 27,451,522 28,056,487 Subtotal $244,249,556 $30,965,167 $3,017,313 $20,342,693 $3,845,639 $27,451,522 $329,871,890 Carry over Re-appropriation 13,855,690 9,642,981 1,736, ,609,655 64,632, ,478,174 Totals $258,105,246 $40,608,148 $4,754,246 $20,342,693 $115,455,294 $92,084,437 $531,350,064 A reconciliation of budgeted and non-budgeted fund balance is as follows: General Fund Schedules of Revenues, Expenditures and Changes in Fund Balances Budget to Actual $64,580,935 Revenues: Non-Budgeted Expenditures: Non-budgeted (32,619) Revenues over (under) Expenditures 32,619 Other financing sources (uses): Non-budged (1,087,767) Excess (deficiency) of revenues and Other financing sources over (under) Expenditures and other financing uses (1,055,148) Change in reserve for inventory (32,619) Prior years differences (12,580,754) Statement of Revenues, Expenditures and Changes in Fund Balances $50,912,414 The non-budgeted expenditure in the general fund is a change in the reserve for inventory of $32,619, which represents the amount of inventory consumed during the year, and $1,087,767 of excess sales taxes transferred from the general fund to the debt service fund. 55

9 Note 1. Summary of Significant Accounting Policies (Continued) E. Deposits and Investments Cash and cash equivalents as reported by the County and the component units represent cash on hand, demand deposits, negotiable order of withdrawal (NOW) accounts, and short-term investments with original maturities of three months or less from the date of acquisition. County policy and State law require that all monies deposited in a depository bank be completely insured by the Federal Deposit Insurance Corporation or fully collateralized with securities of the United States or its agencies. Governmental Accounting Standards Board Statement Number 40 Deposit and Investment Risk Disclosures, an amendment to GASB Statement Number 3, establishes and modifies disclosure requirements related to investment risks associated with credit risk (including custodial credit risk and concentrations of credit risk), interest rate risk, and foreign currency risk. To limit the concentration of credit risk, the County has an established policy, whereby the maximum aggregate for all investments in obligations of U. S. Agencies and Instrumentalities shall not exceed 100 percent. The County has also established interest rate risk policies that limit the maximum maturity of any one security to 10 years or less. The County is not exposed to foreign currency risk since County policy prohibits investment in any foreign investments. Governmental Accounting Standards Board Statement (GASB) Number 59 became effective for fiscal years beginning after June 15, Statement No. 59 requires external investment pools that operate in conformity with the Securities and Exchange Commission (SEC) Rule 2a7 as promulgated under the Investment Company Act of 1940, as amended, to report investments using the net asset value per share method calculated on a basis other than fair value, such as amortized cost method that provides a net asset value per share that approximates fair value. To qualify as a 2a7-like pool, the pool should satisfy all SEC requirements of rule 2a7, including that a group of individuals fulfills the functions of a board of directors. Investments reported on the balance sheet are stated at amortized fair value. All of the County s investments are purchased with maturities of ten years or less. In accordance with the Public Funds Investment Act, all County investments are in United States Treasury Securities, agency securities, TexPool, TexPool Prime, certificates of deposit or commercial paper through an authorized investment pool. All certificates of deposit are fully insured by the Federal Deposit Insurance Corporation and/or fully collateralized with United States Treasury or agency securities. United States Treasury Securities are backed by the full faith and credit of the United States. Agencies have no expressed liability assumed by the U.S. Government; however, the agencies are required to maintain secured advances, guaranteed mortgages, U.S. Government securities or cash in an amount equal to the amount of the consolidated bonds and discount notes outstanding. Securities pledged to the County as collateral are held by a third party bank in the County s name. 56

10 Note 1. Summary of Significant Accounting Policies (Continued) E. Deposits and Investments (continued) TexPool and TexPool Prime The State Comptroller of Public Accounts exercises oversight responsibility over TexPool and TexPool Prime, the Texas Local Government Investment Pool. Oversight includes the ability to significantly influence operations, designation of management and accountability for fiscal matters. Additionally, the State Comptroller has established an advisory board composed of both participants in TexPool and other individuals who do not have a business relationship with TexPool. The Advisory Board members review the investment policy and management fee structure. Currently, TexPool and TexPool Prime are rated AAAm by Standard & Poor s. As a requirement to maintain the weekly rating, portfolio information must be submitted to Standard & Poor s, as well as the office of the State Comptroller of Public Accounts for review. TexPool and TexPool Prime operate in a manner consistent with the SEC s Rule 2a7 of the Investment Company Act of 1940, as amended. TexPool and TexPool Prime qualify as 2a7-like pools and are reported at the net asset value per share (which approximates fair value) even though it is calculated using the amortized cost method in accordance with the provisions of GASB Statement 59. The pools are subject to regulatory oversight by the Texas State Comptroller, although they are not registered with the SEC. TexPool invests in obligations of the United States Government, its agencies or instrumentalities, fully collateralized repurchase agreements or reverse repurchase agreements, or no-load money market funds that are registered with and regulated by the SEC. TexPool Prime invests in obligations of the United States Government, its agencies or instrumentalities, fully collateralized repurchase agreements or reverse repurchase agreements, no-load money market funds that are registered with and regulated by the SEC, certificates of deposit issued by national or state banks or credit unions, including savings banks, provided that such bank or credit union are domiciled in Texas, or commercial paper that matures in 270 days or less from the date of its issuance. F. Receivables and Payables Activities between funds that are representative of lending/borrowing arrangements outstanding at the end of the fiscal year are referred to as either due to/from other funds for the current portion of the inter-fund loan or advances to/from other funds for the non-current portion of inter-fund loans. All other transactions that occur between individual funds for goods or services provided are classified as "due to/from other funds". Advances between funds, as reported in the fund financial statements, are offset by a fund balance reserve account in the applicable governmental fund, which indicates that they do not represent available financial resources and are not available for appropriation. 57

11 Note 1. Summary of Significant Accounting Policies (Continued) F. Receivables and Payables (continued) Property tax receivables are shown net of an allowance for uncollectable accounts. Property taxes are levied October 1 st and become delinquent on February 1 st, at which time penalties and interest are assessed. The allowance for uncollectable property taxes is set at one percent of the outstanding delinquent taxes at September 30, G. Inventories and prepaid items All inventories are valued at cost, which approximates market, using the first-in/first-out (FIFO) method. Inventories of the governmental funds are recorded as expenditures when consumed rather than when purchased. Payments made to vendors for goods or services that will benefit periods beyond year-end are classified as prepaid items. H. Restricted Assets Certain proceeds of the County Water System Projects are classified as restricted assets on the balance sheet and are maintained separate on the books. Those resources are for the repayment of the related debt, customer deposits, and to maintain the required reserves. The reserve fund is used to cover any deficiencies from operations that could adversely affect debt service payments. The government-wide statement of net position reports $116,662,135 of restricted assets, of which $21,665,586 is restricted by enabling legislation. I. Capital Assets Capital assets, which include property, plant and equipment, and infrastructure assets, are reported in the appropriate governmental or business-type activities columns in the governmentwide financial statements. Capital assets are those assets with a value of $5,000 or more and with useful lives of over one year. Also, the value of existing capitalized assets is increased for any additions regardless of the amount, when the useful life is extended or the functionality of the asset is improved. Assets are recorded at historical cost or estimated historical cost if purchased or constructed. Donated capital assets are stated at their fair market value on the date donated. When no historical records are available, capital assets are valued at estimated fair market value on the date received. The costs of normal maintenance and repairs that do not add to the value of the assets or substantially extend the life of the assets are not capitalized. Improvements and major outlays are capitalized as projects are constructed. Interest incurred during the construction phase of capital assets of business-type activities is included as part of the capitalized value of the assets constructed. Capital assets for the enterprise fund related to the East Montana Water System are depreciated using the 120 percent declining balance over 40 years in accordance with the bond covenant. 58

12 Note 1. Summary of Significant Accounting Policies (Continued) I. Capital Assets (continued) All other capital assets are depreciated in accordance with the County depreciation method listed below. Capital assets under construction are not depreciated until construction is completed. Capital assets of the County are depreciated using the straight-line method over the following estimated useful lives: Assets Years Buildings 30 Moveable & Fixed Equipment 3-10 Furniture 10 Roads 20 Vehicles 5 Heavy Vehicles 7-10 Improvements 20 Bridges 35 Infrastructure Assets of the Hospital District are depreciated on a straight-line basis over the following estimated useful lives: Assets Years Building & Improvements 8-40 Moveable & Fixed Equipment 3-15 Assets of ESD1 are depreciated on a straight-line basis over the following estimated useful lives: Assets Years Building & Improvements 40 Heavy trucks 10 Equipment 3-10 Assets of ESD2 are depreciated on a straight-line basis over the following estimated useful lives: Assets Years Building & Improvements 40 Transportation Equipment 5-10 Equipment

13 Note 1. Summary of Significant Accounting Policies (Continued) J. Deferred outflows/inflows of resources In addition to assets, the statement of net position and/or balance sheet will periodically report a separate section for deferred outflows of resources. The deferred outflow of resources represents a consumption of net position that relates to a future period and will not be recognized as an outflow of resources until then. The County has a deferred outflow of resources for a deferred charge for the difference in the carrying value of the refunded debt and its reacquisition price. This amount is deferred and amortized over the life of the refunding bonds. The Hospital District has a deferred charge for the difference in the carrying value of the refunded debt and its reacquisition price, which is being amortized over the life of the refunding bonds ESD1 and ESD2 do not have any items in this category. In addition to liabilities, the statement of net position will periodically report a separate section for deferred inflows of resources. This deferred inflow of resources represents an acquisition of net position that applies to a future period and will not be recognized as an inflow of resources until that time. The County has only one type of deferred inflow of resources, which arises under the modified accrual basis of accounting that qualifies for reporting in this category. The item, unavailable revenues-property taxes are reported only in the governmental funds balance sheet. The Hospital District has only one type of deferred inflow of resources, which arises under the modified accrual basis of accounting that qualifies for reporting in this category. The item, unavailable revenues-property taxes are reported only in the governmental funds balance sheet. The ESD1 has only one type of deferred inflow of resources, which arises under the modified accrual basis of accounting that qualifies for reporting in this category. The item, unavailable revenues-property taxes are reported only in the governmental funds balance sheet. The ESD2 has only one type of deferred inflow of resources, which arises under the modified accrual basis of accounting that qualifies for reporting in this category. The item, unavailable revenues-property taxes are reported only in the governmental funds balance sheet. K. Compensated Absences Regular full-time employees accumulate vacation leave at varying rates depending on their years of service with the County as follows: Number of Years of Service Vacation Leave Days Earned Per Year Up to 5 years 10 5 to 15 years 15 Over 15 years 20 60

14 Note 1. Summary of Significant Accounting Policies (Continued) K. Compensated Absences (continued) Vacation leave may be accumulated up to a maximum of two times the annual vacation benefit (20, 30 or 40 days depending on the number of years of service). Employees lose, without pay, unused vacation leave, which exceeds this limit. Regular part-time employees accumulate vacation leave at half the rate of regular full-time employees. On September 30, 2014, the County's total liability for vested vacation leave totaled $13,704,903. Each regular full-time employee earns sick leave at the rate of 15 working days per year and may accumulate a maximum sick leave balance of 90 working days. Outstanding sick leave balances are canceled, without recompense, upon termination, resignation, retirement or death except in the case of sheriff's officers. In accordance with the provisions of Governmental Accounting Standard Board, Statement No. 16, Accounting for Compensated Absences, no liability is recorded for non-vesting accumulating rights to receive sick pay benefits. A liability in the amount of $16,520,484 has been established for the accumulated vested sick leave benefits of the El Paso County Sheriff's deputies and detention officers. This is in accordance with the provisions of the contract agreement between the County and the El Paso County Sheriff's Association, whereby the County shall buy back any unused sick leave at the end of an officer s career. An officer will be paid at the rate of one day's pay for one day's sick leave up to 90 days and thereafter at the rate of one day's pay for every three days of sick leave. Vested vacation and sick leave benefits are not expected to be liquidated with expendable and available financial resources and therefore, are reported as long term liabilities in the government wide statements. The accrued accumulated vested benefits liability for the current year is $30,225,387 of which $11,272,360 is reported as due within one year. The general fund or the appropriate special revenue fund is used to liquidate any liabilities for compensated absences. L. Long-term Obligations For the government-wide financial statements and proprietary fund types in the fund financial statements, long-term debt and other long-term obligations are reported as liabilities in the appropriate governmental activities, business-type activities or proprietary fund type statement of net position. Bond premiums and discounts are deferred and amortized over the life of the bonds using the straight-line method. Bonds payable are reported net of the applicable bond premium or discount. 61

15 Note 1. Summary of Significant Accounting Policies (Continued) L. Long-term Obligations (Continued) Bond premiums, discounts, and issuance costs are recognized in the fund financial statements of governmental fund types during the current period. The bond face amount and any premiums are reported as other financing resources while any discounts are reported as other financing uses. Bond issuance costs are reported in either the capital projects or debt service fund depending on whether the bond is a new issue or refunding issue, regardless of whether or not the costs were withheld from the bond proceeds received. M. Fund Balances During the meeting of September 30, 2013, the County Commissioners Court established financial policies by resolution, that included a policy for maintaining a minimum fund balance of 10 to 15 percent of the total general fund adopted operating budget in any one fiscal year, or at a minimum, a balance equal to the projected cash needs for the first fiscal quarter to meet operating obligations. The County implemented the requirements of GASB 54 Fund Balance Reporting and Governmental Fund Type Definitions for fiscal year The County categorized its fund balances in five classifications and in the hierarchy to which the government is bound to honor constraints on specific purposes for which amounts in those funds can be spent. Nonspendable These balances represent amounts that are not in spendable form or are legally or contractually required to be maintained intact, such as inventories. Restricted Fund Balance Represents amounts that are restricted to specific purposes, with constraints placed on the use of resources by (a) external creditors, grantors, contributors, or laws or regulations of other governments; or (b) imposed by law through constitutional provisions or enabling legislation. Fund balance on the debt service funds will be restricted for the payment of principal and interest on the debt service obligation. Any funds that are remaining after all debt is extinguished will be transferred to the general fund to be used for any general purpose. Committed Fund Balance These balances represent amounts that are restricted for purposes which County Commissioners Court, the County s highest level of decision-making authority, have designated their use. These amounts are committed through the adoption of a court order. These amounts can only be re-allocated by the same formal action that was taken to originally commit those amounts. Funds allocated through the use of general fund monies for capital assets are categorized as committed. Assigned Fund Balance Represents amounts that are constrained by the government s intent to be used for specific purposes, but are neither restricted nor committed. The governing body may delegate its authority to assign amounts to another body or officials, for example a budget or finance director. The Commissioners Court, when it is appropriate for fund balance to be assigned, delegates the authority to the County Auditor. Assignments may occur subsequent to fiscal year end. 62

16 Note 1. Summary of Significant Accounting Policies (Continued) M. Fund Balances (Continued) Unassigned Fund Balance Represents the residual amount in the general fund that has not been restricted, committed, or assigned to specific purposes. It is the County s policy to use restricted funds first, when expenditures are incurred for purposes for which both restricted and unrestricted funds are available. In the case of unrestricted funds, the County will consider first reducing committed funds, then assigned, and followed by unassigned when expenditures are incurred for purposes for which amounts in any of those unrestricted fund balance classifications could be used. The restricted other purposes amount of $2,899,873 reported as other governmental funds consists of $2,899,873 special revenue funds restricted for various programs and projects. N. Comparative Data/reclassifications Comparative total data for the previous year have been presented in selected accompanying financial statements in order to afford an understanding of changes in the County's position and operations. Comparative data, nonetheless, have not been presented in all statements because such inclusion would make certain statements unduly complex and difficult to comprehend. Also, certain amounts in the Enterprise Funds presented for the prior year data have been reclassified consistent with the current year s presentation. O. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. P. New accounting pronouncement Governmental Accounting Standards Board (GASB) Statement Number 65, Items Previously Reported as Assets and Liabilities, which establishes accounting and financial reporting standards that reclassify certain items previously reported as assets and liabilities to deferred inflows or outflows of resources and recognize certain items that were previously reported as assets and liabilities as expenses and revenues. The County s financial statements are presented in accordance with this statement. GASB Statement Number 68, Accounting and Financial Reporting for Pensions, whose objective is to improve the accounting and financial reporting by states and local governments for pensions and to improve the information provided about the financial support for pensions that is provided by other entities. This statement replaces the requirements of statement 27 Accounting for Pensions by State and Local Governmental Employers, as well as the requirements of statement 50 Pension Disclosures, as they related to pensions provided through pension plans administered as trusts or equivalent arrangements that meet certain criteria. This statement is effective for fiscal years beginning after June 15,

17 Note 1. Summary of Significant Accounting Policies (Continued) P. New accounting pronouncement (Continued) GASB Statement Number 69, Governmental Combinations and Disposals of Government Operations, establishes accounting and financial reporting standards related to government combinations. The term government combinations includes a variety of transactions referred to as mergers, acquisitions, and transfers of operations. Disposal of a government s operations results in the removal of specific activities of a government. The requirements of this statement become effective for government combinations and disposals of government operations occurring in financial reporting periods beginning after December 15, GASB Statement Number 71, Pension Transition for Contributions Made Subsequent to the Measurement Date, this statement addresses an issue regarding application of the transition provisions of Statement Number 68, Accounting and Financial Reporting for Pensions. This statement will eliminate a source of a potential significant understatement of restated beginning net position and expense in the first year of implementation of Statement 68 in the accrual-basis financial statements of employers and non-employer contributing entities. The provisions of this statement are to be applied simultaneously with the provisions of Statement 68. GASB Statement Number 72, Fair Value Measurement and Application, addresses accounting and financial reporting issues related to fair value measurements. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. This statement requires a government to use valuation techniques that are appropriate under the circumstances and for which sufficient data is available to measure fair value. This statement is effective for financial statements for periods beginning after June 15, Note 2. Legal Compliance - Budgets The County Auditor serves as the Budget Officer for the Commissioners Court of the County. Budgets are adopted by Commissioners Court on a modified accrual basis. Under Texas law, county governments may prepare annual budgets under one of three subchapters. Effective fiscal year 2015 and beginning October 1, 2014, the County of El Paso began operating under Local Government Code , Subchapter C., Alternate Method of Budget Preparation in counties with a population of more than 125,000 which establishes a Budget Office. Accordingly, the County Commissioners budgeted for various new departments and positions such as the Office of the Chief Administrator including department of Budget and Fiscal Policy and created chief positions of County Chief Administrator and a Budget Executive Director (Budget Officer). The Budget Officer prepares a proposed budget utilizing spending requests received from the various County departments and agencies. This proposed budget contains the County Auditor's estimate of revenues. The Commissioners Court may not legally adopt an annual operating budget containing appropriations in excess of the available funds at the beginning of the fiscal year and the anticipated revenues for the fiscal year as estimated by the County Auditor. 64

18 Note 2. Legal Compliance Budgets (Continued) Public hearings pertaining to the proposed budget are conducted by Commissioners Court and the Budget Officer. During these hearings, the department heads are requested to explain and justify their spending requests. Before determining the final budget, Commissioners Court, while establishing overall spending priorities for the County, may increase or decrease the amounts requested by the different departments and agencies. After approval of the budget, Commissioners Court may authorize transfers of appropriations within the various expenditure levels during the year. Such transfers, however, may not increase the overall budget total. The County budget may be increased during the course of the fiscal year for newly received bond proceeds, grants, state aid, intergovernmental contracts or unanticipated revenue received after adoption of the budget. The legal level of budgetary control requires that all expenditures shall be made in strict compliance with the budget. The legal level of budgetary control for the general fund and special revenue funds is effectively controlled at the category (personnel, operations, capital outlays) level by department, while control for the debt service funds and capital projects funds is at the fund level. Any budgetary changes impacting appropriations at these levels may be made only with the formal approval of the Commissioners Court. Note 3. Detailed notes on all funds A. Deposits and Investments At year-end, the carrying amounts of the County s deposits were $221,428,748 consisting of cash and cash equivalents. Of this amount, $1,861,113 represents custodial funds from the County Clerk s Probate Account, $6,064,833 represents funds held in the District Clerk s Custodial Account and $257,595 represents restricted assets for business-type activities. The bank balance of $174,812,107 was covered by $250,000 federal depository insurance with the remaining bank balance fully collateralized with securities held in the County s name in a joint custody account with the County s Depository bank at Frost National Bank. The carrying amount of the deposits for the Hospital District, the discretely presented component unit, was $219,750,000, consisting of cash and cash equivalents. The bank balance was covered by $250,000 federal deposit insurance and the remaining bank balance collateralized with securities held in the hospital s name by the depository bank s trust department. The carrying amount of the deposits for the ESD1, the discretely presented component unit, was $1,392,683, consisting of cash and cash equivalents. The bank balance was covered by $250,000 federal deposit insurance and the remaining bank balance collateralized with securities held in the District s name by the depository bank s trust department. The carrying amount of the deposits for the ESD2, the discretely presented component unit, was $3,909,276, consisting of cash and cash equivalents. The bank balance was covered by $250,000 federal deposit insurance and the remaining bank balance collateralized with securities held in the District s name by the depository bank s trust department. 65

19 A. Deposits and Investments (Continued) As of September 30, 2014, the County had the following investments. Weighted Average Investment Type Fair Value Maturity (Years) TexPool investment pool $31,235, TexPool Prime investment pool 7,444, Total $38,680, As of September 30, 2014, the Hospital District had the following investments. Unrestricted Weighted Average Investment Type Fair Value Maturity (Years) U.S. Agencies $ 922, Total $ 922, Restricted Weighted Average Investment Type Fair Value Maturity (Years) Repurchase Agreements $144,076, Certificates of deposit 700, Total $ 144,776, ESD1 had the following investments as of September 30, 2014: Unrestricted Investment Type Fair Value Certificates of Deposits $807,312 U.S. Agencies 6,978 Total $814,290 Interest rate risk. In accordance with the County s investment policy, the County has established interest rate risk policies that limit the maximum maturity of any one security to 10 years or less. The County has been able to minimize its exposure to interest rate risk through its depository contract, which set a minimum interest rate that the depository would pay that is above the current short-term market rates. The Hospital District has established interest rate risk policies that limits the maximum maturity of any one security to 5 years or less, except for the tobacco settlement fund for which the maximum maturity is 10 years. ESD1 and ESD2 do not have a formal investment policy that limits investment maturities as a means of managing their exposure to fair value losses arising from increasing interest rates. 66

20 A. Deposits and Investments (Continued) Credit risk. The Public Funds Investment Act Government Code (b) limits allowable investments to obligations of, or guaranteed by, governmental entities, certificates of deposit, share certificates, repurchase agreements, bankers acceptances or commercial paper not to exceed 270 days, mutual funds not to exceed 90 days, guaranteed investment contracts, and investment pools. The County and Hospital District further limit investments to United States Treasury bills, bonds and notes, certificates of deposit, United States Agency securities (GNMA, SBA, EXIM BANK, FMHA, GSA, FNMA, FHLB, FHLMC, and FFCB), repurchase agreements (County not to exceed 4 days, Hospital District repurchase agreements must have a defined termination date), commercial paper through an authorized investment pool, and an investment pool authorized through Commissioners Court. ESD1 and ESD2 have no investment policy that would further limit its investment choices except state law. El Paso County Investment at September 30, 2014 Local Government Investment Pools Component Unit Investment at September 30, 2014 Federal Home Loan Bank Local Government Investment Pools Standard & Poor s Rating AAAm Standard & Poor s Rating AA+ AAAm Concentration of credit risk. To limit the concentration of credit risk, the County has an established policy, whereby the maximum aggregate for all investments in obligations of U. S. Agencies and Instrumentalities shall not exceed 100 percent. The County is not exposed to foreign currency risk since the County prohibits investment in any foreign investments. Hospital District investments shall be diversified by limiting concentration of specific security types, issuers, and by staggering maturity dates. ESD1 and ESD2 places no limit on the amount the district may invest in any one issuer. Custodial credit risk deposits. This is the risk that in the event of a bank failure, the County s or Hospital District s deposits may not be returned to the respective entity. The County and Hospital District protect their deposits by requiring the respective entity s depository bank to fully collateralize the amount in excess of federal depository insurance, with securities held in the respective entity s name in a joint custody account with the respective entity s depository bank at a third party financial institution. ESD1 and ESD2 Do not have a policy for custodial credit risk. 67